Obama’s Empty Words
It seems the market has lost all confidence in the Obama administration’s policies, and rightfully so. Every time he opens his mouth and moves his silver tongue the stock market shudders. Tim Geithner doesn’t help, Bernanke comes off as the smart one in the group, and Press Secretary Gibbs is revealing himself as a two-bit hack when it comes to politics and communication.
You don’t single out the most highly visible characters on Wall Street, take a few back handed shots at them, and expect the market to have any trust in your leadership, especially when those shots follow the revelation that it’s Obama’s desire for capital gains rates to go up on nearly everyone. Not to mention the fact that Obama wants to raise taxes on the “rich”; lest we forget that the “rich” are the ones still spending money these days. Brilliant!
The fact that Gibbs is making any mention of Rush Limbaugh indicates that the administration is looking for a diversion from its own policy, or lack there-of.
The President tells the nation that it should go out and invest in stocks, even after his own treasury secretary (Geithner) goes on camera and single handily drops the market like an old pair of underwear with a rotten waistband. No details for the financial sector, no bull market bounce for you, Mr. Geithner.
Further, Obama tells the public that the stock market shouldn’t be viewed as a “tracking poll”; obviously worried about how he and his administration are to be perceived when those monthly brokerage statements hit the mailbox. The fact is, the stock market is the biggest tracking poll we have about our economic health (at least when it’s not manipulated by the government) of which the policy of Barack Obama narrowly guides. Ask anyone with some skin in the market how their account is looking today and you’ll get a glimpse at those poll results.
Obama is a great speaker, to be sure, and the words he uses are well thought out, the sentences well structured, and the tone well managed. However, at the end of the day, that’s all he’s got; a bunch of empty words with little real leadership and understanding of major problems needed to inject any substance into his rhetoric.
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Amen and Amen…Obama’s speeches sound good but there is no substance to actually what he is saying. They are taking from the productive and give to the non-productive.
love it, great post.
AMEN! This guy himself is as empty as his words. No substance to the guy, hasn’t really accomplished anything he’s had to work really hard for, and has had a lot given to him…
Looks like you and I are at opposite ends of the political spectrum.
I think we should give Obama some time and see how things play out.
@ Mike: I’m willing to give him 4 years.
mike’s right, you got to give him a chance
His ability to lead is reflected in the market, like you say. This guy can’t be trusted to make good decisions if he doesn’t even understand the importance of the guidance the stock market portrays.
I never feared a recession, but I do fear the tax burdon Obama wants to place on America’s wealthy, which everyone should remember INCLUDES small businesses!
I’d say that Obama missed his calling as a motivational speaker, cause that’s really all he is, but you don’t motivate people by telling them the sky is falling.
Id love to be optimistic about this guy, but based on his first two months in office, I’m starting to regret voting for him. I remember thinking to myself back in July of last year that he may represent the turning point in American politics. Could lead from the center of the aisle, and could actually get things done while looking out for the average American.
Evidently I was wrong.
He’s definitely not the leader I was hoping he would be.
sorry to switch topics but here is something that may be of interest.
the first segment of the linked story discusses CDSs and the tail wagging the dog effect that comes out of a form of arbitrage. What I don’t understand and hope you may is the implication that the CDS market is still very underpriced with many willing sellers at what appear to be unreasonably cheap prices. I would think the sell side is about gone away with the end of so many financial firms. Any ideas? I should add that I have heard discussions of this stuff for some time but haven’t really though about it.
http://online.barrons.com/article/SB123638352312458031.html
i think CDS’s simply offer a shortcut for people wishing to alleviate counterparty risk…
basically its a put on a bond. and the equity ramifications are obvious to me…if a company defaults on their debt, its nearly assured that its equity has already been wiped out.
thus, in my mind…institutions sold insurance or wrote puts on bonds with the idea that they would not fail, similiar to neiderhoffers countless blow outs by selling puts on the stock mkt ad nasuem. once the ball gets rolling more and more people are margined up and forced out.
i do believe that CDS behave erratically different than bond puts due to the fact that CDS can be triggerd by EVENTS while bond puts are only affected by pricing.
1. CDS can be triggered by a restructring
– missed or delayed payments
2. Also, rating agencies play a major factor, with the fact that stock price declines can lead to violations of debt covenents leading to downgrades which snowball into further borrowing costs and hence further impairment of a company.
3. i think there is a TON of gamesmanship to be played in CDS…
– obvious example to me is a company can in essence buy up many multiples of their notional debt from institutions. obviously CDS’s would surge on this buying. but in the end you can see that the company, country, or fund would have more to GAIN by seeing the CDS triggered than they have in remaining on debt schedules.
as a dirty trading idea for a country, i would simply purchase CDS’s on myself, and then whammo, miss a payment, trigger the payment, and then use proceeds to pay down the debt, or if i’m really nasty, just defualt on the debt outright, basically getting payed to default. crazy but possible. BOND holders are usually forced to workout the debt, but the CDS holder just ends with an immediate prize. THE IDEA THAT CDS are underpriced is a massive considering how many people understand this strategy.
This is totally a game i wish i could play, tho i should add it provides absolutly zero to the world in terms of ecomomics and causes massive destruction, it all gets back to the fact that there are IDIOTS out there who have no idea what they are doing and play the game without understaning it.
interesting concepts and this creates a whole range of possible opportunitis in my mind.
stuff like this now makes me understand why volatility and mkt dislocations can expand to the levels we are currently experiencing. sadly more volatility and black swans are possible the more i run the ramifications thru my head.
thots?
@hayek
Credit default swaps are only now becoming more mainstream because things are so out of balance in the market.
In essence, CDS’ are an unregulated way to insure your position on a companies balance sheet. Unfortunately there’s no way of telling who owns default “insurance” on stock they’ve gone short on.
At this point I believe the CDS market is still underpriced because many of the swaps haven’t paid out (yet) because the government hasn’t allowed many big hitters to fail. Once they do (and I hope they do), the CDS market effectively resets and there’s really no reason to go short.
To really capitalize on this system, you would, like you say, buy a put on a GM bond, and then short the stock. It’s a fairly safe bet because at this stage in the game the company will likely default on something, triggering the CDS payout. Once it does, you cover your short, collect the CDS payout and start looking elsewhere.
I say it’s a fairly safe bet because there aren’t many investors, personal or institutional, that are willing to take a flyer and go long on GM. Why would you?
I agree that the CDS market is at part a culprit for increased market volatility, but it’s only because there are so many big names in perilous positions (GM, Chrysler, any of the major financials…). If the market were more healthy, and the leadership of the big caps were more focused, the effect of the CDS market would probably be less.
-Grant
P.S. – for those who have no idea what a credit default swap (CDS) is, I wrote a post last November explaining it all…
@hayek,
I’ve been meaning to ask you: Your moniker; are you from the Friedrich or Salma persuasion?
Friedrich August von Hayek more commonly reffered to as F.A. Hayek ala “The Road to Serfdom”
http://en.wikipedia.org/wiki/The_Road_to_Serfdom
great book, that you and many of your readers would enjoy.
also,i have been seeing more and more commentary containing references to “Atlas Shrugged”
that is also a great read, tho its exhaustingly long. offers a near perfect overview to our current environment.